[Muanet] Does this relate to superannuation?

[Dion Giles]

The following article in the New York times rings alarm bells about the 
shift from SSAU into various private superannuation schemes, said to be 
higher-yielding.  Should it?  Is there any parallel?

Dion Giles

=============================

http://www.nytimes.com/2002/06/21/opinion/21KRUG.html?todaysheadlines=
&pagewanted=print&position=top

NYT June 21, 2002
June 21, 2002

Fear of All Sums
By PAUL KRUGMAN

It is difficult to get a man to understand something," wrote Upton
Sinclair, "when his salary depends upon his not understanding it." To
make sense of what passes for debate over Social Security reform, one
must realize that advocates of privatization — of replacing the
current system, at least in part, with a system of personal accounts
— are determined not to understand basic arithmetic. Otherwise they
would have to admit that such accounts would weaken, not strengthen,
the system's finances.

Social Security as we know it is a system in which each generation's
payroll taxes are mainly used to support the previous generation's
retirement. If contributions from younger workers go into personal
accounts instead, the problem should be obvious: who will pay
benefits to today's retirees and older workers? It's just arithmetic:
2-1=1. So privatization creates a financial hole that must be filled
by slashing benefits, providing large financial transfers from the
rest of the government or both.

During the 2000 election campaign, George W. Bush was able to get
away with the nonsensical claim that private accounts would not only
yield high, low-risk returns, but save Social Security at the same
time. For whatever reason, few reporters pointed out that he was
claiming that 2-1=4. But when it came time to produce concrete plans,
the arithmetic could no longer be avoided.

Sure enough, the plans laid out by Mr. Bush's Commission to
Strengthen Social Security, though presented as confusingly as
possible, involve both severe benefit cuts and huge "magic
asterisks," infusions of trillions of dollars from an undisclosed
location. The extent of the damage is documented in a new Center on
Budget and Policy Priorities report by Peter Diamond of the
Massachusetts Institute of Technology and Peter Orszag of the
Brookings Institution. (Mr. Diamond, who is one of the world's most
eminent economists, and is arguably the world's leading expert on
retirement systems, was my colleague when I taught at M.I.T.)

The Diamond-Orszag report is informative; even I was surprised by a
couple of revelations. For example, the mystery money infusions that
the commission assumes will somehow be forthcoming are almost enough
to preserve Social Security exactly as it is, with no benefit cuts,
forever. Also, the commission's plans include severe cuts in
disability benefits, a crucial part of Social Security that
privatizers have a habit of overlooking.

But in a way, the most interesting thing about the new report is the
administration's reaction. Charles Blahous, who was executive
director of the commission and is now on the White House staff,
quickly responded with a memo best described as hysterical. The
number of non sequiturs and misrepresentations Mr. Blahous manages to
squeeze into just a few pages may set a record. Among
other things, he angrily accuses Mr. Diamond and Mr. Orszag of
failing to address issues they cover quite clearly. Of one such
accusation, Mr. Orszag remarks drily that "in his haste to issue a
response to our paper, the Executive Director appears to have
overlooked the final box . . . which addresses precisely that issue
and provides the comparisons he requested (though he may not be
pleased with the results). We direct his attention to that box."

A sample of Mr. Blahous's tactics is his insistence that private
accounts don't weaken Social Security, because diverting money
from the trust fund into those accounts doesn't reduce the total sum
of money available — if you still count private accounts as part
of the total. As they say in the technical literature, "Well, duh."

Of course the money doesn't disappear — but it is no longer available
to pay benefits to older Americans, whose own Social Security
contributions were used to pay benefits to previous generations.

As the facts about Social Security privatization gradually emerge,
the general strategy of the privatizers seems to be to keep the
public confused as long as possible. Indeed, Republicans are now
being told to deny that personal accounts — which expose their
owners to all the risks of any private investment — constitute
"privatization." "Do not be complicit in Democratic demagoguery,"
urges one party memo. So it looks like a duck and walks like a duck,
but it isn't a duck — not until after the next election.

But whatever they say, it is a duck. And the administration
economists who claim that privatization will strengthen Social
Security are, more than ever, revealed as quacks.